Should Africa be Worried About Chinese Loans?

Last week Tuesday, just before he jetted out to what Joseph Conrad in his 1899 novel, â€˜Heart of Darkness,â€™ described as the dark continent, United States Secretary of State, Rex Tillerson, was at the George Mason University in Fairfax, Virginia. There, bespectacled and huddled in a dark suit, he gave a speech in which he described Chinaâ€™s approach to solving Africaâ€™s infrastructure gap as one that endangers the continentâ€™s resources and its long-term economic and political stability. Although Mr. Tillerson admitted that Chinese investments do have the potential to address Africaâ€™s infrastructure gap, he pointed out that such investments have done very little to improve Africaâ€™s job fortunes while increasing its debt burden.Â

Mr. Tillerson, in his stoic, bland manner, would repeat similar warningsÂ two days later, while addressing journalists at Addis Ababa, the Ethiopian capital city. â€œWe are not in any way attempting to keep Chinese dollars from Africa,â€ Mr. Tillerson assured. But â€œit is important that African countries carefully consider the terms of those agreements and not forfeit their sovereignty.â€Â

In response, the Chinese government, which was in the middle of a constitutional amendment, reiterated its commitment to Africaâ€™s growth and prosperity. â€œBe assured, no matter how the world may change or what others might say, the profound friendship between China and Africa will remain unbreakable,â€ Chinese Foreign Minister, Wang Yi, told a press conferenceÂ on Thursday. â€œAfricaâ€™s concerns are Chinaâ€™s concerns, Africaâ€™s priorities are Chinaâ€™s priorities.â€

The rhetoric from Beijing, however, did not address the issues raised by Mr. Tillersonâ€™s warning.

While the United States remains the leading aid donor to Africa, China surpassed it as the continentâ€™s biggest trading partner in 2009. Although Chinaâ€™s development assistance to Africa in the form of infrastructure boasts a long history, dating back to the Tanzam railway completed and handed over to the Zambian government in 1976. But since the turn of the century, Chinese companies, which mostly have connections to Beijing, have ramped up infrastructure investments across the continent. These investments have been executed, in part, through a kind of barter system where states pay for new railroads, highways, and airports while Chinese companies are guaranteed long-term supply of hydrocarbons or minerals.

It is difficult to estimate the â€˜fairnessâ€™ of the barter system because the specific details for most of these deals are kept under wraps by the governments involved.

But one of its characteristics, according to critics, is the insistence of Chinese contractors to bring their own workers to carry out their projects. In a continent ravaged by unemployment, many are quick to point out the ridiculousness of such practices. But maybe it is not so ridiculous if the success rate of Chinese companies, in terms of delivering infrastructure projects in a timely fashion and at much lower prices than their competitors, is factored into the argument. And a reason for this success rate is that Chinese companies have an integrated system for sourcing finance, engineering talent and raw materials. If it is cheaper to import an engineer from China to work on a project in Monrovia, why raise costs by hiring a local one? The answer to this question, whatever it might me be, undoubtedly, raises the question of skills transfer.

In his pivotal book, â€˜Chinaâ€™s Second Continent,â€™ American journalist, Howard French travelled around Africa, meeting with Chinese immigrants and local policymakers. One of his most profound observations, in the book, bordered on the notion of the continentâ€™s fast depleting natural resources. â€œAt current rates, in the next forty years, most African states will have twice the number of people they count now,â€ French wrote. â€œBy that same time, their presently known reserves of minerals like iron, bauxite, copper, cobalt, uranium, gold and more, will be largely depleted.â€ This is why French observed, it is important for African states to invest in their citizens now, particularly in education and health.

But the relationship between Africa and China appears not to be conducted on a â€˜human capital investmentâ€™ basis. The Chinese talk about trade and infrastructure and connectivity and shared growth, but do they also prioritise the training of African engineers, doctors and scientists?

â€œThe Chinese come and they want your iron, your bauxite, your petroleum,â€ a Guinean academic, Amadou Barry told French on one of his many travels. â€œIn return, theyâ€™ll deliver you turnkey projects, where they supply the materials, the technology and the labour, with salaries that are mostly not paid in the country and do not contribute to the economy.â€ The real problem, however, Barry stressed, was that with the skills gap that wasnâ€™t been closed â€“ decades back, China built a National Assembly building for Guinea. Barry noted that they never taught the locals how to maintain it. â€œEven now, when the light bulbs are burned out, we have to call the Chinese to change them,â€ he said.

Still, Chinaâ€™s impact in Africa â€“ even as it relates to adding jobs to the economy â€“ must not be underestimated. Chinese apologist and engagement manager at McKinsey and Co., Irene Yuan Sun, was part of a team that did some research on a swathe of Chinese firms operating in Africa. â€œIt turns out that they (Chinese firms) collectively employ more than 300,000 people, and 90 per cent of the employees are Africans,â€ she said, last Wednesday, during an Engagement Dialogue in Washington. In the same vein, yesterday, during a press conference, officials from the Chinese Ministry of Commerce touted Chinaâ€™s increasing humanitarian and human capital aid to Africa, the latter through the creation of special economic zones.Â

However, a possible objective answer to whether Africa should be worried about Chinese loans is an emphatic â€œnoâ€. The continent needs capital as it enters a period that will determine its future and China is willing to give it. Closing the infrastructure gap will also open up the economies of several countries, enhance trade on the continent and create job opportunities. Nonetheless, its governments must understand the crucial importance of diversifying from minerals-based economies into human capital-based economies: focused on skills and technology, not the soil. It is only this kind of priority shift that can help Africa take advantage of its current unique place in the world.

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